Bacteriophage Lambda when expressed from a prophage causes several changes in host physiology (transformation). Two regions of the prophage DNA encode genes (hin) which cause this effect. One of these regions is cloned in a plasmid; one open reading frame of 288bp is contained in this fragment. The effects caused by hin can all be related to membrane changes in the host. The regulation of the Lambdaint gene has been determined. It can be transcribed from either of two promoters PI and PL. PI requires LambdacII protein in additon to RNA polymerase to initiate. It transcribes int and terminates at a site tI 260 bases beyond the gene. This RNA synthesizes high levels of int. PL also transcribes int but is prevented from terminating at tI by LambdaN gene product which makes polymerases initiating at PL (but not PI) non-terminating. The PL transcripts do not synthesize int. A site on the PL transcript inhibits int expression. It is an endoribonuclease site (RNaseIII) located 260 bases beyond int. RNA processing here sensitizes the int m-RNA to a proposed 3' - 5' exonuclease in E. coli. The terminated PI transcript is not processed (the RNaseIII site is not formed) and is not sensitive to the exonuclease. This posttranscriptional control of int from a site located beyond the gene is called retroregulation.